You Go First: Update on Various Hail Mary Schemes to Put a Bid Under Fictitious Capital
It seems the big fanfare on plans to put bids under fictitious capital have hit some snares. Gee, ya think these Boyz want someone else to go first? First the SIV fund, when first announced was good for about 300 points on the Dow.
NEW YORK (Reuters) - The three U.S. banks assembling a super fund aimed at alleviating the global credit crunch are scaling back its size due to a lack of interest from the financial firms it’s supposed to help, the Wall Street Journal said in its online edition, citing sources familiar with the matter. The fund — originally viewed as a $100 billion fund which would buy assets from struggling investment vehicles — may now end up being half that size, the Journal said.
As I anticipated the New Desperation Alliance scheme has been unveiled, and observers see it for what it is, puff propaganda. This one too, was good for a few hundred points.
Barclays Capital — extrapolating from a similar program recently unveiled in California — estimates that only about 12 percent of all subprime borrowers, or 240,000 homeowners, would get relief. “From what I’ve heard, I don’t see anything that leads me to believe we will see an increase in loan modifications,” said Eric Halperin, Washington director of the Center for Responsible Lending, a nonprofit group that has studied the subprime problem.
Although I don´t see this puff scheme amounting to much, it may have an unintended consequence of scaring off even more capital for mortgages, and downgrading more securities. 
“If investors all of a sudden feel that a contract can be changed at the whim of industry participants or at the jawboning of government, ultimately that could have the effect of cutting off capital,” said Joshua Rosner, managing director at New York-based research firm Graham Fisher & Co.
Standard & Poor’s said yesterday that freezing rates on subprime mortgage loans may lead to credit-rating reductions on some mortgage bonds. The government’s plan may shrink the difference between interest payments received from home loans and the interest due to bondholders, S&P said in a report.
And he said the President’s plan could result in lawsuits from borrowers not included in the plan or from investors in mortgages. “This could be a goldmine for trial lawyers,” he said. “The lawyers will win again.”
 Also of note is a sudden surge in auto loan delinquencies especially for prime borrowers. I believe this is correlated to the major tightening in mortgage conditions in the early fall.
About 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month, according to a Lehman Brothers survey of companies servicing these loans. That is the biggest one-month jump in at least eight years. Lehman says 12% of subprime borrowers, who have poorer credit records, were delinquent on their 2006 auto loans as of September. That is the highest level since 2002 and up from 11.1% the previous month.
Herb Greenburg with an excellent blog on this very development,  it´s not just subprime and resets. He focuses here on second mortgages. Be sure to read my last paragraphs.
No, it´s not just subprime, or auto loans, or home equity lines of credit (HELOC). No hardly, this is a generalized credit rout involving multiple fictitious capital sectors. What´s next, a Hail Mary plan for saving commerical real estate?
“Issuance of US commercial-mortgage-backed securities fell to $6.3bn in October, down 84 per cent from a record $38.5bn in March, according to Commercial Mortgage Alert, a trade publication. The decline in CMBS issuance is crucial because such securities have provided an estimated 40 to 60 per cent of financing for new commercial property purchases in recent years.” Financial Times, November 13, 2007
With these programs stalling, and nobody willing to step up first, thank God we have the credit insurers to make good on the losses. Or do we, not so sure judging from the stock prices. And the credit agencies are still reviewing the sterling credit ratings of these outfits? In a no shit Sherlock moment, Moody’s expressed doubts about MBIA capital base. MBIA admitting as much is scrambling for a capital injection, you first?
Open call to the Winter Watch community. In an attempt to get discussion properly focused again I have what I consider to be the most important question of the day. First, foreign central banks (FCB) completely passed on new custodial holdings in the latest week. It came in at zero change, marking six straight weeks of inactivity.  
In the Fed´s H.4.1 report footnotes you will see the term ¨federal agency¨and $808.3 billion listed. The vast majority of these were purchased during the last three years at the peak of the housing Bubble. The question is, what is this entry exactly? Is the term federal agency accurate or misleading, and to what degree? How good is the collateral behind these holdings.
How many foreclosures and non performing mortgages do central banks hold? Do FCBs hold only mortgages issued by housing agencies, or have they been caught in the bogus AAA rated mortgage backed securities snare? Do they in fact also hold a shitload of severely marked down securities? I suspect this is the case and in spades. And even if these are all virtually GSE agency securities, how many have been damaged by measures such as allowing second lien or piggyback mortgages to be used against them?  Do FCBs hold primary mortgages with delinquent second mortgages? Do they even know if the seconds are delinquent? How involved directly have FCBs been with purchases of agency backed non traditional loans such as HELOCs?
For the first nine months of 2007, nontraditional loans made up about a third of Freddie Mac’s mortgage purchases, up from almost a quarter in the first nine months of 2006.√Ǭ†√Ǭ†
However, in recent years, Freddie Mac permitted home buyers to borrow all or part of the remaining 20 percent by using second loans, called “piggyback” loans, with no safety net.
I have seen almost no discussion of this from analysts or the MSM. Do close observers like Brad Setser even discuss this aspect at all (I don´t know?)? Is there any transparency at all to this question? You tell me, I´d really like to get to the bottom of this?
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